Martin Taylor is right to sell BZW and recalls George Soros turning red over lunchby John Plender / November 20, 1997 / Leave a comment
The argument between the advocates of shareholder value and stakeholder capitalism often sounds like the dispute in Gulliver’s Travels over the best end of the egg from which to extract the yoke. The short-termist Anglo- Saxons-call them little-enders-under-invest but use capital very efficiently. The stakeholder economies-or big-enders-invest heavily but less productively. Yet growth rates in the two sets of economies have been converging.
The risk of generalisation becomes apparent when you look at Barclays’ decision to spin off BZW, its investment banking arm. The sudden reversal in Barclays’ view of what constitutes a core business looks typically Anglo-Saxon-hardly the way to encourage the remaining employees in a “people” business to commit themselves to the company. Yes, the target rates of return set for the Barclays’ group by chief executive Martin Taylor look high, as Will Hutton of the Observer has remarked. And while Taylor has shown himself deft in the arts of cutting and spinning which he learned at the textile giant Courtaulds, one wonders whether he is as adept at generating revenue-or indeed, at spotting good investments other than Barclays’ own shares.
Yet Taylor is surely right to submit to capital market discipline and pull out. The investment banking business is a madhouse nowadays. It is being wrecked by people with more capital than sense. The profligate use of capital is not, incidentally, confined to the stakeholding Swiss, Dutch and Germans who are buying UK investment banks and bidding up pay on Wall Street. The US financial conglomerate Travelers, under the guiding-or perhaps one should say misguiding-hand of Sanford Weill, is buying Salomon Brothers for $9 billion in paper.
Weill’s deal is unlikely to work, because big investment banks are mainly low-trust outfits full of greedy people out to appropriate more and more of the value from high-risk trading activity at the expense of shareholders. If senior managers do not give in to their demands, these individualists quickly spin themselves off. This is the recent history of Salomon, where the efforts of savvy investor Warren Buffet and British-born boss Deryck Maughan have failed to impose a sane pay structure on hostile traders. Barclays’ is well out of such lunacy.
the argument over the different models of capitalism remains heated in continental Europe. Yet the terms of the debate are confusing. Last month I heard Sergio Marchionne, chief executive of the Swiss industrial group Alusuisse-Lonza, declare that stakeholder capitalism…